BY ALEX VAN TOL
For many, shopping for a mortgage feels overwhelming. Given the abundance of information to research and ponder, some people can be a little funny: they might spend the time to find the perfect phone plan for the best fit and value, but when it comes to the biggest purchase of their lives, they’re intimidated by the options.
Whether you’re purchasing a house or condo, taking out equity from your home, or renewing your current mortgage, it’s important that you are making an educated buying decision.
The Bank: A Tried-and-True Partner
When you shop for a mortgage at your bank, you need to understand that the bank’s mortgage specialist sells only that lender’s products (it’s the same with a credit union). So, you might not be getting the most competitive interest rate — and if you need to close your fixed-rate mortgage early, either because you’re moving or because your circumstances change, you may be faced with a penalty.
Banks do bring a lot of upsides. People often opt for the bank because of its reputability and familiarity. If you have a pre-existing relationship with your bank, you may feel more comfortable taking your mortgage there. A distinct upside of borrowing from your bank is that a strong relationship with your banker can often pull you through if you hit financial snags. In more complex financial circumstances — if you’re self-employed, say, or your credit is a bit shaky — it may be best to work with your bank, especially if you have a long history.
“Sometimes the bank can pull the deal together based on your history, not just on your last year or two.”
—Kirsten Marten, co-owner of Coldwell Banker Oceanside Real Estate
“Sometimes the bank can pull the deal together based on your history, not just on your last year or two,” says Victoria realtor Kirsten Marten, co-owner of Coldwell Banker Oceanside Real Estate.
So if you love your bank and you feel like they understand you and your needs, do consider them as a viable option.
The Credit Union: Banking with a Local Business
Credit unions offer the same services that banks offer and focus on their own products. The key difference is that they are owned provincially, which means they take a local view to serving their customers.
“Credit unions have been rated number one in customer service excellence for 14 years in a row,” says Moira Hauk, regional manager of Coastal Community Credit Union for Southern Vancouver Island, referencing an IPSOS poll. “So if you’re interested in having somebody who you can pick up the phone and talk to and really build a relationship with, I would say a credit union is a choice for getting great advice.”
Credit unions also invest heavily in their local communities. “Every dollar that you invest with us stays on Vancouver Island,” says Hauk. “Your deposits are in Joe’s house over there. His mortgage is helping us pay you interest on your account. So that’s actually kind of cool.”
“If you’re interested in having somebody who you can pick up the phone and talk to and really build a relationship with, I would say a credit union is a choice for getting great advice.”
—Moira Hauk, Coastal Community Credit Union for Southern Vancouver Island
Being owned provincially also means credit unions aren’t bound by the federal mortgage qualification regulations.
“Not all credit unions are following the Bank of Canada qualification or requirements for non-high-ratio mortgages,” says Hauk. “If they’re high-ratio and they’re insured through CMHC or Genworth, then everyone is required to follow the CMHC stress-testing guidelines. But if they are conventional, many credit unions are not following those guidelines.”
Which means you could possibly go down to your credit union and find yourself a rate that’s almost two-per-cent lower than the five-year benchmark rate — and find yourself more house for your money. Like a bank, it may help to have a solid preexisting relationship with a credit union in order to benefit from this possibility.
The Broker: The Independent Option
If you want the lowest mortgage rate possible, a mortgage broker is likely your best bet. This person is an expert in mortgages alone — not in RRSPs, TFSAs and balanced funds. This is another benefit.
“For the most part, a broker only does one credit check but can shop your application to multiple lenders,” says Jodie Kristian, mortgage consultant with Modern Mortgage Group. “This is important because every time someone checks your credit rating your score drops.”
Mortgage brokers operate independently but must be licensed; they are overseen by the Financial Institutions Commission (FICOM) and undergo ongoing training to maintain that licence. A broker can work with banks, credit unions and monoline lenders (lenders who only offer mortgages) to find you the best rate possible, and can coach you through the steps to buying a home.
“A broker can offer solutions in terms of which lenders are likely to approve an application and which may not.”
— Jodie Kristian, mortgage consultant with Modern Mortgage Group
“What I like the most about mortgage brokers is that they’re shopping you to many different products as the buyer,” says Marten. “So they’re looking for the product that’s best for you.” Marten adds that about 85 to 90 per cent of her clients opt to work with a mortgage broker.
An excellent broker will have your best interests and needs in mind — not just the best commission. Which means as a buyer, you have to do your due diligence and get referrals from people you trust.
“I’ve been a broker for 13 years and 100 per cent of my new clients come from referrals,” says mortgage planner Elizabeth Prins. “My goal is to put people in the best mortgages for them so they’re happy with my services and they tell their friends and family. I will do mortgages for people and I don’t even get paid; if it’s the best place for them to be, I will do it. Sometimes it does make sense for them to stay with their current bank.”
“My goal is to put people in the best mortgages for them so they’re happy with my services and they tell their friends and family.”
—Elizabeth prins, mortgage planner
Finally, says Kristian, when it comes to qualifying for a mortgage loan, each lender calculates payments on current debt, property taxes etc.,
a bit differently.
“A broker can offer solutions in terms of which lenders are likely to approve an application and which may not.”
There’s no silver-bullet answer to where you’ll find your best mortgage. The best advice is to carefully examine the choices, and compare the features of the different mortgages offerings. Ask your most trusted people about their experiences, and use their referrals to do your homework.
